Nokia report sets out the risks of getting into bed with Microsoft...
Windows Phone 7: Nokia assesses the risks of adopting Microsoft's smartphone OSImage: Microsoft
Nokia has detailed the risks inherent in throwing its fortunes in with Microsoft by adopting the Windows Phone 7 (WP7) smartphone platform as its primary OS.
According to an annual report filed by Nokia with the US Securities and Exchanges Commission on Friday, the potential risks include an inability to differentiate and customise a Nokia WP7 offering to distinguish it from other WP7 adopters, and missing out on the chance to adopt a more successful rival smartphone OS - such as Google's Android.
"The Windows Phone platform is a very recent, largely unproven addition to the market focused solely on high-end smartphones with currently very low adoption and consumer awareness relative to the Android and Apple platforms, and the proposed Microsoft partnership may not succeed in developing it into a sufficiently broad competitive smartphone platform," the report notes.
"Our expected transition to the Windows Phone platform may prove to be too long to compete effectively in the smartphone market longer term given the ongoing developments of other competing smartphone platforms."
The Form 20-F also states that Nokia sees a risk of its brand identity being eroded by being in bed with Ballmer and co. It flags up China as a possible market where the Nokia brand may be tarnished by association with Microsoft, and notes that having Redmond behind it may fail to boost its fortunes in a market where Nokia has traditionally struggled: the US.
Impoverished patents portfolios and a lack of profitability are other risks Nokia highlights. Not only might its WP7 pact fail to create a profitable business model for Nokia - as it switches from its royalty-free Symbian OS to the royalty-based WP7 platform - it may also hamper Nokia's future R&D efforts by eroding the possibility of profitable patents coming down the line as the company steps back from developing core platform technology for its smartphones, handing that responsibility over to Microsoft.
Nokia notes there are risks to workforce morale as a result of the Microsoft pairing - which could cause reduced productivity and focus among its employees, potentially leading to the loss of "key personnel".
Nokia also notes the risk of its...
...installed base of circa 200 million Symbian owners haemorrhaging during the two years it expects it will take to move to WP7 as its "primary smartphone platform".
The world's biggest mobile maker is pencilling in sales of some 150 million more Symbian devices in the years to come - "supported by our plan to deliver additional user interface and hardware enhancements" to the platform - but notes that Symbian may lose support from mobile operators, distributors, customers and developers if it is perceived to be an unattractive investment owing to Nokia's adoption of WP7.
Nokia also touches on its investment in the MeeGo open-source OS, noting it may not realise a return on investment with the mobile platform project if the market segment it plans to target with a MeeGo device that will ship later this year does not materialise as expected.
The report says the absence of tablets in Nokia's current mobile portfolio could hamper future efforts to compete in the tablet market. "We do not currently have tablets in our mobile product portfolio, which may result in our inability to compete effectively in that market segment in the future or forgoing that potential growth opportunity in the mobile market," the report notes.
Microsoft has played down the possibility of its WP7 platform being used on tablets, with WP7's product manager telling silicon.com last year: "No one's come to me and said we need to make a tablet."
By contrast, scores of companies have been using the Android OS to power slates in an effort to compete with tablet market leader Apple and its iPad - including HTC, LG and Samsung. Google has tapped into this tablet boom by creating a tablet-focused version of its Android OS called Honeycomb.